FRM Part II · FRM Exam Part II · Risk Mitigation
A bank's operational resilience framework identifies its critical operations and sets an impact tolerance for each. What does an impact tolerance represent?
Impact tolerance is the maximum disruption a critical service can endure before it causes intolerable harm to customers or the financial system. It is a severity limit set for planning and testing, not an expected loss, an insurance limit, or a likelihood of disruption.
- AThe maximum level of disruption to a critical service the firm could withstand before intolerable harm resultsCorrect
- BThe expected annual loss from operational events on that service
- CThe insurance limit purchased to cover losses from that service
- DThe probability that the service is disrupted in a given year
Explanation
Impact tolerance is the maximum disruption (often expressed as time or scale) a firm can accept for a critical service before causing intolerable harm to customers or market integrity. It is not a loss expectation, an insurance limit, or a probability.
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